The ECB is greening its monetary policy

The ECB is greening its monetary policy

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The monetary policy conducted by the European Central Bank (ECB) will now explicitly take climate change into account. Made last week, this announcement marks a major change for the ECB, hitherto firmly attached to the principle of market neutrality.

End of the ECB’s market neutrality principle

The European Central Bank (ECB) announced on Monday 4 July that it was going to explicitly take into account climate change in the conduct of euro area monetary policy. This is a major turning point, long called for by Christine Lagarde – the President of the ECB –, many economists and announced in the “strategic review” of the ECB last summer.

“Within our mandate, we are taking further concrete steps to integrate climate change into our monetary policy operations. In addition, as part of our evolving climate action agenda, further measures will be taken to ensure alignment of our activities with the objectives of the Paris Agreement”. (Christine Lagarde, President of the ECB)

This announcement marks, in fact, the end of market neutrality hitherto put forward by the ECB. In accordance with this principle of neutrality, the ECB could not target, in the conduct of its monetary policy, any specific company or sector so as not to introduce market distortions.

Details of the measures announced by the ECB

the greening of ECB monetary policy will go through the gradual implementation over the coming months and years of various measures. Here are the main ones:

Decarbonization of assets held by the Eurosystem

The Eurosystem brings together the ECB and the national central banks of the 19 member countries of the euro zone.

In the conduct of monetary policy, the Eurosystem notably acquires corporate bonds. In the future, he will redirect his portfolio by buying bonds issued by companies with “good” climate performancei.e. companies characterized by low levels of greenhouse gas emissions, having ambitious carbon emission reduction targets or demonstrating transparency regarding their carbon footprint.

Consideration of environmental criteria in the choice of assets accepted as collateral

When the ECB advances short-term liquidity to commercial banks, the latter must deposit financial securities as collateral. The ECB will limit the share of financial assets issued by entities to high carbon footprint.

Greater transparency of actors in environmental matters

Issuers of financial assets accepted as collateral by the ECB will have to comply with the Directive on the publication of information on corporate sustainability (Corporate Sustainability Reporting Directive, CSRD). In particular, they will have to publish certain extra-financial information, relating in particular to the carbon footprint of their activities.

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